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Neuer Markt crash piques interest of U.S. firms

EM.TV was first to float, first to sink

BERLIN — After the fall comes the fallout. After the crash, the consolidation.

The scene is set on Germany’s collapsing Neuer Markt for a flurry of takeovers, mergers and bailouts in the coming months, particularly among film companies that are fast running out of cash.

With once-overhyped stocks such as Senator, Kinowelt and Helkon are now going for a song, and the companies themselves unable to tap the markets for fresh equity, all the conditions are right for a big ownership reshuffle.

“Most of the companies have become takeover targets,” says Merrill Lynch analyst Bernard Tubeileh.

The only question is whether they will join forces to re-emerge as stronger indie players — or whether they will fall into the clutches of predatory media groups, either European or American.

Kidvidder EM.TV, first to float and first to sink, has now become one of the first to sell out, through its deal with the Kirch Group. Advanced Medien has also sold a 25% stake, with an option for more, to ambitious video distrib E-M-S.

Market watchers are now betting on who will be next, and how soon.

“We believe the bailout of EM.TV by a European content owner marks the beginning of asset sell-off activity among some Neuer Markt media companies,” Goldman Sachs analyst Martina Bilmayer said in a recent report.

“We also think the Hollywood majors could be interested in purchasing assets from some of these troubled companies.”

When rumor surfaced last week that Bertelsmann was poised to buy a stake in Kinowelt, both parties issued firm denials. But the kick it gave to Kinowelt’s share price showed just how ready the market is to believe that such seismic shifts may be just around the corner.

There’s also the possibility of reverse takeovers, which would enable American players to get a listing on the Neuer Markt without having to launch an IPO in a bear market. Several U.S. companies, including Artisan, Hallmark and Spyglass, are known to be exploring Neuer Markt options.

And the prime movers are likely to be the banks that brought the German companies to the stock market in the first place, and now urgently need to rationalize what they did. Deutsche Bank is one finance house looking into structures to acquire IPO company libraries.

Current market speculation puts Highlight in bed with Constantin, and Senator together with Kinowelt.

Highlight, the Swiss-German distrib that also controls Euro rights to the highly lucrative Champions’ League soccer, could buy Kirch’s stake in Constantin.

The two companies certainly share a compatible cherry-picking approach to rights acquisition, and a similarly conservative style of financial management. By Neuer Markt standards, their balance sheets are relatively sound — partly because they are also two of only three companies (the other being Senator) that managed to sell any films last year to Kirch TV channels.

Constantin is the one rival for which Highlight execs express frank admiration. But no deal is in the works, they insist.

Meanwhile, Highlight is eyeing expansion into the music business and on the Internet.

Senator and Kinowelt are widely touted as a natural fit, because both have a strong presence in German exhibition, and have spent aggressively on bulk rights acquisitions and Hollywood production deals.

With UCI also reported to be looking for an exit from German exhibition, the two players could unite to control the local market.

“Those two companies merged together would also be an absolutely top candidate for an international takeover,” Tubeileh says.

Kinowelt certainly hit a cash crunch last fall when it was forced to suspend payment for a $300 million package of TV rights to Warner movies.

It has since resolved its immediate liquidity crisis by off-loading part of its stake in Alliance Atlantis, and selling 4.9% of its own stock to a friendly insurance company.

But neither of these are long-term solutions, and more corporate maneuvers are expected.

Since the death of topper Werner Koenig last fall, Helkon Media is seen by some analysts as a prime takeover target. Some look to the Neuer Markt’s cash-rich kidvidders such as TV Loonland as possible suitors.

Helkon has a strong range of partners both in the U.S. and in Europe, but little cash. The company has fallen behind in payments to at least one major product supplier. According to a Merrill Lynch study last November, Helkon then had $3 million in the bank.

Helkon has already taken a majority stake in the U.K.’s Redbus, though controversy over financing of the deal remains.

Meanwhile, Neuer Markt wags say that beleaguered Intertainment topper Barry Baeres has locked himself into an office with a fax machine in a desperate bid to sell the company. In the meantime, scaling back operations seems the order of the day.

After the collapse of its mammoth 60-pic output deal with Franchise Pictures into legal acrimony, the company seems to have no visible business activities beyond chasing Franchise topper Elie Samaha through the courts for $75 million in damages.

With no theatrical arm of its own, Intertainment honchos say the company is under no immediate pressure to replace the Franchise deal. Its Euro distribution pacts with Fox and Warners are for up to 60 pictures.

Advanced Media also is fighting for its life, after what company topper Christophe Montague calls bad decisions by previous management. Having issued a liquidity crunch statement, the company is trying to renegotiate a $12 million package of box office flops from StudioCanal.

The company’s position wasn’t helped when co-founder Herbert Jovy sold his 24.7% stake to E-M-S.

Advanced is now considering canceling its deal to take a stake in Telepool, the rights-trading company backed by the German pubcasters, and says it is in talks to sell a stake in the company via a capital increase. At its current market value, that wouldn’t raise much.

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